Virtually fraud-proof: Grow a virtual card program

One of the business stories coming out of the last year is the dramatic growth of electronic supplier payments. In Q4, Nacha, National Automated Clearinghouse, reported a 15% year-over-year increase in B2B ACH payments. The unfortunate sidebar

Kristin Cardinali, Nvoicepay

to that story is the rise in ACH payment fraud. In all likelihood, we'll see a corresponding 15% increase in B2B ACH fraud— possibly more, since remote working restrictions left many organizations vulnerable to attack.

As organizations work to improve their defenses against ACH fraud, they should also ramp up their use of virtual cards as much as possible since that is the most secure way to pay suppliers. Supplier objections to fees have always acted as the barrier between the status quo and advanced payment options. With the way the B2B payments landscape is changing, and in light of rising fraud, it may be worth revisiting those conversations with suppliers. Or, for some companies, possibly initiating that conversation for the very first time.

Not the same as plastic
Despite its decade-long presence, I still meet a good percentage of people who have never heard of virtual cards—or if they have, they don't know how they work. Many companies today use a plastic card to pay their suppliers. Alternatively, they use purchasing cards when they purchase supplies. Those physical cards often get lost or stolen. The number can also be stolen even without possessing the actual card.

Virtual cards use the same networks as plastic cards, but they offer several layers of protection that make them fraud-resistant. They are sometimes called single-use cards because the 16-digit number provided can only be used once. That alone is significant. It's simply not as attractive to fraudsters to steal single-use information. It's far more appealing to get a regular card number or hack into a supplier system to divert ACH payments. Those are scalable, repeatable types of fraud, if you will.

When it comes to single-use cards, the card number is associated with an amount and a merchant ID number. Each piece of information must match the details provided for transactions to go through. This strict requirement makes single-use virtual cards very difficult to take advantage of.

Really, the most susceptible virtual card risk is employee misuse. You can even eliminate that risk by using virtual cards through a payment services provider—they usually have an indemnification process in place.

Fast, guaranteed funds
The big fraud protection benefit is obviously on the buying side, with the buyer receiving a rebate, which helps to defray AP costs. But what about benefits on the supplier side?

Prior to joining Nvoicepay, I sold into accounts receivable. The big concern there is to collect and reconcile payments as quickly as possible. Virtual cards can help on both counts. Virtual card funds reach their designated accounts in 24-hours from the time the payment is approved, while checks and ACHs can take up to 10 and two days, respectfully. There's value in being able to offer AR teams quick payments.

What's more, these are guaranteed funds. Once they run the card, the funds are theirs. This isn't always the case for ACH and check payments, which can fail or bounce. Wire payments are the only other payment type that is guaranteed, but they're expensive to issue and time-consuming to set up, which is why they're not usually used domestically.

When it comes to reconciliation, plastic cards are hard to reconcile at scale, but virtual cards can be wrapped into a technology solution that automates those processes.

A more nuanced view
When it comes to fees, there's still a misconception that accepting a virtual card is expensive for suppliers. I do think 2020 acted as a tipping point where suppliers are looking at fees in a more nuanced way. Fast, guaranteed funds are nothing to sneeze at in an environment where many customers might be struggling.

Suppose you scale your program and set up a portal for suppliers to receive virtual card payments. In that case, you can receive level two and level three discounted processing. That can often significantly minimize your fees. I've seen instances where fees went from 2.5% to 1%.

Volume and payment size are components of those discounts—if you make large volume payments, you might get a better overall rate and better rates on smaller payments. But access to data is another component. The additional data associated with virtual cards helps issuers mitigate fraud risk. Other data is transmitted with the payment—data that can be used for economic analysis and even for marketing.

It appears that in 2020, COVID-19 did more to move companies off checks and onto electronic supplier payments than all the sales and change management efforts of the preceding decade combined. While the initial response was to adopt ACH payments, companies maturing their electronic payment programs will find virtual cards a strategic component that promotes fraud protection and supplier support.